Journal of a Wayward Philosopher Archives - Page 12 of 33

The New Age of Financial Freedom: It’s Not About Retirement

We’ve been talking all week about the origins of modern personal finance… and why it’s time to rethink our approach. Today let’s talk solutions.

To me, everything drives towards financial independence. Or financial freedom. Whichever you prefer.

Now, I realize these are often used as buzz words. And the people promoting them pitch the idea that they can enable a life of leisure and luxury. I’m not interested in any of that.

When I talk about financial freedom, what I’m interested in is the ability to live a purpose-driven life. For many of us, working a nine-to-five on the hamster wheel just isn’t satisfying.

So how do we achieve financial independence? It’s really rather simple.

It’s all about the power of assets. Remember Monopoly? Owning assets… that’s the game’s main lesson.

Today, we are in the midst of a sea change. As the economic climate shifts, clinging to old notions can be a losing battle.

On retirement, incentives, and perpetual growth

Sooner or later, we all sit down to a banquet of consequences. -Robert Louis Stevenson

We’re talking all things personal finance 101 this week, and this quote seems to fit.

For those just joining us, what we consider modern financial planning has its roots in the Employee Retirement Income Security Act (ERISA). That act passed in 1974.

This legislation created 401(k)s and Individual Retirement Accounts (IRA). And it laid out the framework for what we consider “retirement” planning today.

As we discussed yesterday, ERISA pushed millions of people into the financial markets for the first time. Then an entire industry grew up around the concept of “retirement”. This inadvertently set the stage for new challenges… the challenges we face today.

These challenges went unnoticed at first. But now that the Age of Paper Wealth has sunsetted, we’re entering an entirely new economic climate. Thus, we must ask – what are the unintended ripples of this seminal act?

ERISA was constructed as though the Age of Paper Wealth would last forever. That age saw plummeting interest rates and rising stock prices. This gave rise to the belief that perpetual growth was inevitable.

The financial markets today still operate under that assumption. If you’re not growing, you’re dying. That’s still a popular statement in the realm of investment research.

This leaves us with a modern quagmire.

Continue reading “On retirement, incentives, and perpetual growth”

The retirement industry and its ripple effect…

Yesterday we discussed the genesis of modern financial planning. It all stems from the Employee Retirement Income Security Act (ERISA) that passed in 1974.

ERISA was more than just legislation. It sparked a transformative wave in financial planning. In fact, it created the entire “retirement” industry.

That being the case, we need to ask ourselves an important question. How did this single act shift our perspectives and practices?

Before ERISA, employees didn’t have to spend much time planning for retirement. That’s because they could count on receiving payments from both Social Security and a corporate pension plan after they retired. These programs guaranteed a steady stream of income for life.

Many people supplemented these items with personal savings. That became known as the “three-legged stool” concept. As long as all three legs were in place, retirement planning was simple.

However, as we moved into the 1970s and 80s, it became very clear that corporate pensions just weren’t sustainable. That leg of the stool was starting to teeter.

The Genesis of Modern Financial Planning

Financial independence is the ability to live from the income of your own personal resources. –Jim Rohn

Many years ago I made the decision to pursue financial independence. That is to say, I wanted to create a situation where I was in full control of both my time and my money.

With that goal in mind, I began reading books on personal finance. Personal Finance for Dummies… The Truth About Money… Financial Peace – I read all the popular personal finance books at the time.

What jumped out at me was how uniform each book was in their suggestions. They were all reading from the same script.

I figured that was a good thing at the time. If all these popular books agree, they must be on to something—right?

Well… yes and no. It turns out there was a very specific reason why the top personal finance books each peddled the same advice.

The stock market’s new era…

Quick question… When you think of the stock market, what comes to mind?

Is it the rapid rollercoaster of ups and downs? The joy of watching a stock you own soar, or the sinking feeling when it plunges?

I’m here to share a secret with you—one that’s been right under our noses for over half a century but remains almost hidden.

We’re all familiar with the unpredictability of the stock market. Some days it’s smooth sailing. Others, it feels like navigating stormy waters.

But what if I told you there’s a way to anchor your portfolio—a way to ensure it remains stable, even amidst the fiercest of market storms?

Throughout my multi-decade journey deep into the realm of investment research, I’ve been on a relentless quest. A quest to discover the ultimate method to craft an unshakeable portfolio. One that stands tall through changing times, economic climates, and fleeting market trends.

From the commodities craze in the ’70s, the tech bubble of the ’90s, to the recent uproar over metaverses, NFTs, and interest rate hikes – the market is continually evolving.

However, many of these trends fizzle out, sometimes leaving catastrophic financial scars. Imagine watching a portfolio, once on the brink of reaching a million dollars, collapse to a mere fraction of its worth. That happened to more than a few investors during the dot-com bubble.

Navigating the Shark Tank: Why Most Retail Investors Sink in the Stock Market

The stock market sometimes appears to glisten with promises of immense wealth. And this tends to lure unsuspecting investors like a shimmering ocean under the sun. We saw this very clearly in 2020 and 2021 with the rise of Reddit traders and “meme” stocks.

But as many of those rookie investors discovered, underneath the enticing waters lies a treacherous realm. These are shark invested waters. And the unprepared often become their prey.

Many of us have heard romantic tales of maverick traders and overnight millionaires. But the reality for most retail investors is far from a storybook epic.

Studies from market research firm Dalbar prove this. They show that the average retail investor underperforms the market year after year. There are several reasons for this:

Buffett’s 56-year Old Secret: The Unnoticed Treasure in Plain Sight

Yesterday we unmasked the flaws in the traditional approach to stock market investing. As we delved into the murky depths, one thing became clear… much of what the world perceives about the stock market is rooted in short-lived trends and fleeting theatrics.

Today, we’re going to shine the light even further into the dark corners. We’re going to talk about an investing secret that’s been hidden in plain sight for over 56 years. This secret holds the key to building a stock portfolio that will drive returns for us year after year.

We can clearly see this secret if we assess Warren Buffett’s track record over the last five decades. It’s right there staring us in the face.

Buffett is generally considered the greatest investor of our time. So you might be wondering, “How could anything about Warren Buffett, one of the world’s most talked-about investors, remain a secret?”

The answer is simple. We have to look at what Buffett has done – not what he’s said in recent years.

Unmasking the Flaws: The Pitfalls of Traditional Equity Analysis

We’re going to dive into the murky depths of the stock market this week. As readers who have been following along for a while now know, this is a subject we haven’t discussed much in these pages.

That’s largely because the financial media puts the stock market at the center of the universe. It’s the Sun around which everything else revolves. It’s the center of modern finance’s heliocentric model.

But from my experience, stocks should make up only one part of a robust asset allocation model. And stock market investments are not the path to financial freedom. They simply help with financial security.

Still, this asset class has a place. As such, we need to look at it with a critical eye.

Here’s the thing – the stock market is a realm of constant evolution. Every epoch has seen its unique set of market trends.

Finding True Purpose Through Financial Independence

All week we’ve discussed a new approach to retirement planning. But with this one, we scrap the traditional idea of retirement completely. Then we replace it with the pursuit of monthly cash flow and financial independence.

Now, let’s take a moment to talk about what all this financial planning is for…

I read a lot of wealth-building/self-help books back when I was just getting started on my journey. Back then, when they would talk about motivation, they would suggest readers make a list of material goods they wanted to have. Big house… fancy car… nice watch… slick wardrobe – all that stuff.

I don’t know if the wealth-building books today still pitch that nonsense… but that’s exactly what it is. Nonsense.

Financial independence isn’t about being a better consumer. It’s about creating the freedom we need to pursue our true calling.

The Secret to Financial Independence

We’re talking about a new approach to money, finance, and investing this week. And as I suggested yesterday, I think we should replace the word “retirement” with “financial independence”.

Retirement as we know it today is a relic of a bygone age. It’s a myth. So instead of planning for retirement, we should plan for financial independence. And a key piece of the puzzle is monthly cash flow. Cash flow is king.

A hefty retirement account may seem like a winning ticket… but it’s simply the lesser, roundabout path to cash flow. And retirement accounts ultimately pit us against the tax code when it comes time to cash in.

Instead of retirement funds, it’s building a steady stream of tax-advantaged income that truly gives us financial independence.

So my suggestion is simple. Let’s move beyond the nest egg. Let’s set our course for financial independence, not retirement.

And here’s the catch—this isn’t achieved by following the typical financial advice. We’re talking about a fundamentally different approach to wealth.